Iran plans to ration diesel sales, mix gasoline with methanol to make it go
further and accept only cash from domestic airlines for jet fuel, its oil
minister said, as it seeks to manage stretched fuel supplies.

The value of the Iranian rial has dropped against the US dollar this year as
Western sanctions have slashed oil exports, making subsidized diesel
smuggling more attractive, fuel imports more expensive and bank transactions
difficult.

Since December 2010, Iran already has successfully cut demand for gasoline
by introducing smart cards to control Iranian motorists' use of the heavily
subsidized fuel.

Now owners of heavy goods vehicles too will soon have their diesel rationed,
Oil Minister Rostam Qasemi was quoted as saying by Iranian Oil Ministry news
service Shana yesterday, as Tehran tries to stem a surge in fuel smuggling
across Iran's many borders.

"The government pays huge subsidies to the energy sector, which has led to
the sinister phenomenon of smuggling of oil products," Qasemi said.

With the diesel price set at 4,500 Iranian rials a liter, (about 15 US cents
at the open market rate), diesel costs less than bottled water in Iran,
which has led to wasteful consumption and a surge in smuggling, he said.

"Low prices of fuel play an important role in rising smuggling, and that is
why oil products distributor companies should enhance cooperation with
security forces to curb oil products smuggling," he said at the launch of
new cards that monitor how much cheap gasoline Iranians can put in their
cars before having to pay higher prices.

Iran has reduced its gasoline use and increased its refining capacity in
response to Western governments, which have blocked supplies to the country
over the past few years to pressure Tehran over its disputed nuclear
program.

With refinery capacity still falling short of domestic demand, Qasemi said
gasoline could soon be blended with about 35 percent methanol to make it go
further.

"A new formula has been tested in laboratory and is expected to get
necessary licenses for distribution in the near future," Shana quoted him as
saying.

Iran's oil minister also said that airlines operating in Iran will now have
to pay cash for jet fuel for domestic flights at a rate of 7,000 rials per
liter.

He called on Iranian airlines to settle their jet fuel bills in cash in late
November.